A rift is growing between the federal government and fertiliser manufacturers after the industry banded together to write a scathing letter to the finance minister over the state of the recently imposed track-and-trace system for fertiliser bags.
In the letter, members of the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC) lamented the inefficiency and infeasibility of the government’s track-and-trace system. The letter claimed that the government had imported the system without conducting a feasibility study, and that it was proving to be a failure with many technical glitches. Meanwhile, the Federabl Board for Revenue (FBR) has said that the fertiliser industry is making baseless claims for their own benefit.
Is track-and-trace needed?
The idea for a track-and-trace system for the fertiliser industry was introduced back in April this year, when the FBR announced that it would confiscate fertiliser bags being cleared from production sites, factory premises or manufacturing plants without affixation of tax stamps. The government wanted each bag of urea to be digitally tagged so that they could follow and keep track of every single bag as it went through the supply chain.
The concept of these tax stamps was proposed as a solution to the serious issue of urea smuggling that has been going on for years, but which reached a high-point earlier this year. Farmers all over the country had been hit by a fertiliser shortage from November 2021 to February 2022, after which the agriculture sector was on the verge of disaster due to urea smuggling. In March this year, farmer unions had demanded the government take immediate action against the smuggling of urea from Pakistan to the bordering countries.
Urea smuggling is a major issue in Pakistan. Not only does Pakistan have a fully set-up fertiliser industry, it is also provided a subsidy by the federal government to maintain low costs of essential fertilisers like urea and DAP. Neighbouring countries like Afghanistan, however, have a high demand for these fertilisers as well and many bags get smuggled to neighbouring countries, reducing supply in Pakistan and increasing the price of fertilise in Pakistan.
It was because of this growing problem that the government announced the track-and-trace system. By this system, the FBR would be able to keep an eye on all bags of fertiliser in the country through technology. A track-and-trace system is a software-based solution to track products throughout the entire supply chain, from supplier to consumer. It has recently been used to great advantage in sugar mills across the country after the sugar industry faced similar problems of supply being lost to the black-market.
Is it working?
However, the fertiliser industry is now claiming that only did the government make them invest heavily in this system by threatening to confiscate any bags of urea that were not tagged and registered with the FBR, but that those systems they made them spend money on do not work. The industry has raised serious concerns about the suitability of the system for fertiliser production facilities after facing multiple technical issues during, and post implementation of T&T system project.
The letter states that the system and its hardware is incompatible with the harsh and humid outdoor environment of the fertiliser industry, rendering it ineffective and unfit for continuous use. Essentially, they claim that the government imported technology without a proper feasibility study and that the technology is now proving to not be adaptable to Pakistani conditions. The way the system works is that as fertiliser is bagged in factories, each bag is tagged with a stamp. These stamps are then supposed to be scanned, after which the data is sent ahead to the FBR. However, the industry’s letter claims that stamp detection efficiency is as low as 50%, even though the industry was given the guarantee that it would be more than 99%. Stamps reconciliation also generates error with actual production reporting, etc.
Meanwhile, sources within the FBR close to the project have told Profit that the industry is raising a hue-and-cry for no reason. “All of the demos that were given showed that the track-and-trace system works and there are no technical glitches,” said the board source. “We saw this with the sugar industry as well, that they were not happy with the track-and-trace system because once their actual production was on-record prices dropped in the markets. The fertiliser manufacturers fear the same thing.”
Commenting on the matter, Executive Director FMPAC, Brig (r) Sher Shah Malik said that the fertiliser industry is one of the most compliant sectors of Pakistan and has always supported the government’s efforts on documentation of the economy. “The track-and-trace system is neither considered suitable for the fertiliser industry nor is serving any of its stated objectives of enhancing tax revenue, reducing counterfeiting, and preventing smuggling of illicit goods.
The government is yet to respond to the letter, but it is becoming increasingly clear that it has been written out of great frustration. Fertiliser manufacturers have been facing serious technical difficulties implementing a system that they were not in favour of in the first place. While a track-and-trace system may go a long way in preventing the smuggling of urea, the government must at the very least provide an answer regarding whether or not a feasibility study was conducted before the system was imported. If not, explanations will be required.
